Convertibles decouple from equity pricing amid whipsaw action; Whiting Petroleum lower

By Rebecca Melvin

New York, Jan. 14 – Convertibles trading decoupled from equities on Thursday as whipsaw action continued and stocks bounced higher.

Crude oil prices improved, and many names in the energy sector rebounded; nevertheless, some market players were using the better conditions to sell rather than to buy convertible paper.

“We were seeing a lot of trades, and they are not even trading with the stock anymore,” a New York-based trader said.

Whiting Petroleum Corp.’s convertibles traded down despite a 12.5% pop in the underlying shares of the Denver-based oil and gas exploration and production company.

The Whiting 1.25% convertibles due 2020 traded down to 60.625 from about 61.375, a New York-based trader said. That was against shares that rose 75 cents, or 12.5%, to $6.75.

And West Texas Intermediate crude oil for February delivery closed up 65 cents, or 2.1%, on Thursday to $31.13.

The lack of correlation was pretty disappointing, the trader said.

“I don’t think that people are convinced with the stability or that it will make sure these companies can cover their interest obligations,” the trader said.

Nevertheless there was also the expectation that the disassociation would be short lived; and that once a limited number of sell orders cleared, the convertibles would resume tracking equities.

In addition, not all energy names were lower. Chesapeake Energy Corp.’s convertibles were up about a point in thin trade, but still in the mid 50s context.

Meanwhile, Cobalt International Energy, Inc. paper, which had been actively traded earlier this week, was more or less untraded.

Elsewhere, SolarCity Corp. raised eyebrows with its steep 13% slide that was contrary to the broader market move. SolarCity’s convertibles were also indicated sharply lower.

SolarCity tanked because of moves by Nevada Public Utilities Commission to approve proposed rules about residential solar energy that promise to be detrimental to SolarCity’s business in that state, which was a high-growth state in 2015.

But in December the NPUC proposed adding fees to homes with solar and changing the compensation for solar energy going from homes to the grid, paying only the wholesale rate for electricity. This week the NPUC proposed making the ruling retroactive.

SolarCity’s 2.75% convertibles were indicated down to about 81.5 from 87.

WebMD Health Corp.’s stock and convertible bonds staged a reversal early Thursday after the Elmwood Park, N.J.-based provider of online medical information said that it is not in any negotiations to be acquired.

The WebMD announcement Thursday morning was made in response to news reports proposing the opposite. The Financial Times said that the company was eying a sale to potential pharmaceutical or media companies.

WebMD’s 1.5% convertibles due 2020 fell back to 116.4 to 116.9 at late morning from 121.3 to 126 earlier in the morning, according to Trace data. The convertibles had jumped to 119 from 114 on positive guidance and strong web traffic figures for the fourth quarter.

WebMD shares were last down $3.60, or 7%, to $49.59 after an earlier 8% pop and on top of a 6% jump on Wednesday despite a sharp sell-off in the broader markets.

WebMD’s network traffic averaged 201 million unique users a month for the fourth quarter, which was a 6% increase. The company also announced that full-year 2015 earnings and revenue will top guidance, which had been for $625 million to $635 million revenue, which was up 8% to 9%, and EBITDA of $185 million to $192 million.

Equities rallied with the S&P 500 stock index up 31.56 points, or 1.7% to 1,921.84 at the close, after dropping 48.4 points, or 2.5%, on Wednesday.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Cobalt International Energy, Inc. NYSE: CIE

SolarCity Corp. Nasdaq: SCTY

WebMD Health Corp. Nasdaq: WBMD

Whiting Petroleum Corp. NYSE: WLL

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